Rocky Brands, Inc. Q2 FY2025 earnings call

• Delivered very good Q2 results with high single-digit revenue growth and adjusted EPS tripling to $0.55 per diluted share. - Key drivers: broad-based revenue momentum, disciplined cost management, and Outdoor category reassurance led by XTRATUF and Muck. - XTRATUF is the fastest-growing brand with strong U.S. Wholesale and e-commerce growth, and exciting fall/winter 25 lineup. - Muck had best quarter-to-quarter comparison since 2023 with improved inventory and strong growth in various regions. - Durango had high single-digit growth, Georgia Boot showed progressive improvement, and Rocky Work, Outdoor, and Western had growth. - Secured U.S. Navy orders and earned USMC hot weather boot certification. - Retail B2B Lehigh business grew mid-teens, and customer acquisition/spending remained strong.

Reported net sales for the second quarter increased 7.5% to $105.6 million. Wholesale sales net increased 7.1% to $73.1 million, Retail net sales increased 13.9% to $29.7 million, and Contract Manufacturing net sales were $2.8 million. Gross profit for the second quarter was $43.3 million or 41.0% of net sales compared to $38.0 million or 38.7% of net sales in the same period last year. Wholesale margins were up 300 basis points to 40.3%, Retail margins were down 170 basis points to 45.2%, and Contract Manufacturing margins were 12.4%. Income from operations increased 58.7% to $7.2 million or 6.8% of net sales. Adjusted operating income was $7.8 million or 7.4% of net sales. Net income on a GAAP basis was $3.6 million or $0.48 per diluted share, while adjusted net income was $4.1 million or $0.55 per diluted share. Cash and cash equivalents were $2.8 million, total debt net of unamortized debt issuance costs totaled $132.5 million (a decrease of 13.1% since June 30 of last year), and inventories were $186.8 million (up 6.8% from last year).

• Increased 2025 revenue guidance to grow between 4% and 5% compared to 2024 levels. - Forecast gross margins to be down roughly 70 basis points from 2024's 39.4%, inclusive of ~$11 million tariff headwinds. - SG&A expected to be up in dollars but with modest expense leverage on higher sales. - Expect 2025 EPS to increase approximately 10% over 2024's $2.54 per share. - Anticipate stronger gross margin growth in the third quarter versus the fourth quarter, with Q4 having tariff impact and sequential step-up in marketing spend.

• Tariff uncertainty, which has led to strategic sourcing changes but could still impact operations. - Consumer environment challenges, as consumer demand can be fickle and difficult to predict. - Potential changes in supply chain dynamics, especially around August 1 regarding tariff news.

Q: How have things gone in terms of shifting the supply chain and comment on pricing flow through?

A: Thomas D. Robertson said they're ahead of schedule in shifting production from other countries, with production in Dominican Republic ahead of schedule and starting in Puerto Rico. Jason S. Brooks said pricing was a process with retail partners, with some pushback but feeling good about where they're at.

Q: Thoughts on the state of the consumer and sell-throughs since price increase?

A: Jason S. Brooks said consumer is confusing but seeing good sell-through in Work, Farm and Ranch, and Outdoor categories. Thomas D. Robertson said e-commerce websites showed similar growth in June after price increase, and July so far is relatively flat.

Q: Prospects for market share gains related to in-house manufacturing and breakdown of wholesale vs direct-to-consumer?

A: Thomas D. Robertson said they'll leverage in-house operations, with Dominican Republic and Puerto Rico helping keep costs down. Regarding wholesale vs DTC, Retail segment has about half Lehigh business and the other half branded e-commerce and marketplace sales, with XTRATUF having a higher percentage of sales online.